Feb 01, 2010

Amazon Tax (Affiliate Tax) Revenue Generator or Small Business Killer?

I've been watching the issue of the "Amazon Tax" ever since it snowballed through New York. In some cases, it has passed and in other cases (either publically or privately) it has been defeated.

For those of you who may not know what I mean here's a recap:

Online businesses are ONLY required to collect sales tax in states where they have a physical presence, called a Nexus. Recently New York, in its infinite wisdom has stated it is losing hundreds of millions of dollars because of sales to online businesses like Amazon.

As such, the state legislature has redefined nexus to not only include brick & mortar stores, but also to affiliates. Affiliates are in essence commission only sales reps...they are small business run by entrepreneurs trying to make a living. And guess what they pay TAX to the state on their income.

When NY enacted this tax, Amazon, instead of figuring out how to collect sales tax, simply discontinued working with all of its New York affiliates. The same has happened in other states as well.

Result??

1) States see $0 - THAT'S ZERO - new tax revenue from the people it went after like Amazon, Overstock etc.

2) Small Business is hurt badly since they can no longer market for companies like Amazon and Overstock which results on lost revenue.

3) States sees LOWER actual business revenue from these Affiliate Businesses who would pay taxes on business income.

There are a couple of thoughts and realizations I have come to:

1) Politicians tend to operate in sound bites and press releases. What do I mean by this? Well it's easy to propose a *new* tax when you are crying foul against a large retailer like Amazon and holding up a sign with a Giant Number like $220 Million. The reality is that once these taxes pass, Politicos are not accountable to what the end result it. Did it work, Did it hurt small business? We don't know. They don't go back and look at results.

The Performance Marketing Association has done a good job of fighting these issues when they pop up, but one begins to wonder......should we be fighting this one state at a time? The current administration has put focus on small innovative businesses perhaps there is a course of action there?

....is there a way to take this fight to the federal level and oppose it ONCE rather than 50 times? Perhaps our industry needs to engage some policy experts. One thing is certain, with almost all 50 states facing huge budget deficits, this issue is sure to raise its ugly head everywhere this year.

Comments

As an affiliate who's been looking to move to Colorado, this bill being passed is even worse. I have to leave California because the business environment is terrible, but my only real option if they pass this thing is moving to Texas.